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At funerals, it has to be ghost dollars. Not ghost riel. The traditional burning of valuables and items needed in the afterlife includes ghost dollar notes, rather than the riel. But that is changing. With the currency strong and stable and the economy one of the world's fastest growing at an average 7.7 percent for the past decade, the central bank wants to shift the economy away from the dollar.

Increasingly in the markets and on the streets, people pay in dollars and get change back in riel roughly 4,000 to the dollar. Still with an apology, but less so than even a year ago.

But while the central bank is pushing a shift to a riel-based economy, director general of the National Bank of Cambodia (NBC) Chea Serey is going softly-softly. She says a sudden switch would hurt an economy that has been based on the dollar since UN peacekeepers came in in 1991. She says a sudden switch could create a black market in currency trading. The bank in April created a system for bank transfers in riel instead of dollars, for the first time. The plan is to first make switching to riel an issue of national pride. "We will talk about national pride and also explain how important it is to use the riel and make people love and trust it," Serey says.

"Secondly, we are preparing an electronic transaction system (for the banking sector) to promote the use of the riel. When it is easier to use riel than dollars, we hope that people will return to the riel," she added.

Sales assistant Na Ly regularly sends money to her mother from Phnom Penh in a small village near Kampong Speu, about an hour's bus ride from the capital. Now she can do it in riel instead of dollars.

"Dollars were always a problem. No one in my village likes dollars, "she says. "They are too valuable. Cannot buy small things with dollars. Only riel. "You buy Angkor (rice) with dollar how, eh?"

Dollar transactions account for about 83 percent of total transactions, according to the most recent central bank data.

The economy became dollarized after the arrival of United Nations Advance Mission in Cambodia (UNAMIC) and then the United Nations Transitional Authority in Cambodia (UNTAC) in the early 1990s. In 1993, foreign currency deposits accounted for about 36 percent of the total money flowing in the economy. This jumped to 70 percent in 2003 and has continued to increase since then, officials say. The Thai baht and Vietnamese dong are also used in border trade and in border towns.

Serey says the value of the riel could be lost if its use is not promoted. However, she warns that a crackdown on the use of other currencies could spark fund outflows as well as create a black market for currency. The central bank has ordered prices be displayed in riel and not dollars. This is widely ignored. "The regulation (still) exists, but I think recently we see it is difficult to enforce," Serey says.

"What the National Bank of Cambodia is doing, or preparing to do, is encourage people to love riel," she said. But Serey says regulation won't work. Instead the bank is encouraging Khmers to "love the riel". It's not working. "I want to see prices in dollars, not riel," says housewife Kumneth as she shops at Lucky, one of the major Western supermarkets, in downtown Phnom Penh. "My husband is paid in dollars. Not riel. That's how we work. Our bank account is dollars. Our school fees are in dollars. We think in dollars." Neav Chanthana, deputy governor of the National Bank of Cambodia, said the rate of dollar usage was about 80 per cent in 2013.

"Implementing these measures too soon and all at once would cause capital outflow and a black market [for] foreign currency," she says. "The result of vigorous administrative measures would lead to the imbalance of macroeconomic growth." But it's not black and white. There are benefits to a dollarised economy. One is that it helps attract foreign direct investment, economists say. "Foreign direct investors think Cambodia is a very safe country (because of) dollarization and no exchange rate fluctuation," says Suzuki Hiroshi, CEO and chief economist of the Business Research Institute for Cambodia. Hiroshi said. He said the dollarized economy is "a very good advantage for Cambodia to attract investors." However, with currencies in the region falling against the dollar, Cambodia's competitiveness could be undermined, especially its exports, he said.
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Publication:Cambodian Business Review
Date:Jun 30, 2016

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